The EUR/USD could have a critical technical breach here
The dollar is still testing the key
1.2520 weekly trendline support against the euro ahead of today’s FOMC meeting.
It is encouraging to see that EUR/USD could have a critical technical breach
which would likely cause a round of dollar short covering IF the Fed statement
leaves open the door for further rate hikes.
As you well know, this is to be the 17th consecutive hike to
ward off inflation. As we said yesterday, “All major moves in the dollar have
been on changing perceptions of what the Fed will do.”
Look to see if EURUSD breaks below key weekly trendline
support at 1.2520 after the statement as further weakness would set up a bearish
weekly reversal taking it below key weekly trendline support. That should force
many short dollar positions to be covered.
In USDX key resistance is at 86.50 followed by the “wave X”
low of 87.50. A move above 87.50 suggests that we are then going to target the
92.50 highs. Key support is seen at 85.00.
** Note in the chart above how cyclical and seasonal trends
have turned bullish for the dollar once again…
Gold: No change: Gold is again testing resistance at $580 last
week which could see a quick spike to the $600 level. But only a move above
there would suggest further gains.
Recall that we held to our conviction that the parabolic advance from $560 was
unwarranted and that a pullback to the $580/60 area would be “clearly attractive
to traders.” Traders should be long from this well established support level
with stops placed just below last week’s lows. Profit targets are at $600 and
$620. Traders should use trailing stops as there is a chance of renewed weakness
targeting $540.
As we have said for months now, “In the broader picture, this long awaited
correction is underway and recall that a top here at $720 will mark the end of
“wave 1 of V” meaning a pullback to $580/540 would be “wave 2 of V” followed by
an explosive rally in “wave 3 of V” to new all time highs.”
Stocks: Stocks are once again above the 1,250 mark confirming
how important is the key 1,245/50 area which is our line in the sand for bulls
and bears alike. The normal MO for the bulls has been to bid stocks up on the
rate hike because the Fed sees stronger growth, but the dynamics of the rate
hike cycle have changed to a more inflation fighting stance.
Selloffs after the rate hike are the norm and a sustained move below 1,250 is
very likely. Resistance is now seen at the 1,290 area. Traders who are short
from the 1,300’s should have moved stops down to 1,250 as we recommended. We
would look to reenter shorts around the 1290 area or on a further slide beneath
the 1245 level.
Go short with risk above 1,315. Add to position on a move
below 1245.
Bonds: No change: Our bearish forecast is right on target. We are bouncing off
of trendline support at 104 and may see a further decline to the 102 area before
a major rebound.
Crude Oil: No change: A breakout move should be forthcoming
after this long consolidation period.
Note that the corrective process from the $74 highs should still hold above
support at $68. If this holds we still the pullback is “wave (iv) v of 5 of V”
meaning the next advance to marginal new highs around $78 will signal THE TOP of
this move. That move now appears under way.
While not expected, an “extended fifth” wave would mean that this is just the
first leg up within a larger move. That seems unlikely, but the implications are
that either we could top out at $78 or possibly at $82. A prudent move would be
to take some profits there and wait for a pullback to add back to longs in the
hopes of higher highs in the $82-$92 range.
Recommended long at $55 last November. Still looking for a
move to $80-$100 over the coming months.
Jes Black
Jes
Black is the fund manager at Black Flag Capital Partners and Chairman of
the firm’s Investment Committee, which oversees research, investment and
trading strategies. You can find out more about Jes at
BlackFlagForex.com.
Prior
to organizing the hedge fund he was hired by MG Financial Group to help
run their flagship news and analysis department,
Forexnews.com. After four
years as a senior currency strategist he went on to found
FxMoneyTrends.com – a research firm catering to professional traders.
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